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CFPB Private Education Loan Ombudsman's annual report focuses on debt relief scams
On October 15, the CFPB Private Education Loan Ombudsman published its annual report on consumer complaints submitted between September 1, 2017 and August 31, 2019. The report, titled Annual Report of the CFPB Student Loan Ombudsman, is based on approximately 20,600 complaints received by the Bureau relating to federal and private student loan servicing, debt collection, and debt relief services. The report focuses primarily on complaints and student loan debt relief scams, which are, according to Private Education Loan Ombudsman Robert G. Cameron, “two subjects that, if promptly addressed, may have the greatest immediate impact in preventing potential harm to borrowers.” Of the 20,600 complaints, roughly 13,900 pertained to federal student loans with approximately 6,700 related to private student loans. Both categories reflect a decrease in total complaints from previous years. The report also notes that the Bureau handled roughly 4,600 complaints related to student loan debt collection.
The report goes on to discuss collaborative efforts between federal and state law enforcement agencies, including the CFPB, FTC, Department of Education, and state attorneys general, to address student loan debt relief scams. According to the report, the FTC’s Operation Game of Loans (previous InfoBytes coverage here) has yielded settlements and judgments totaling over $131 million for the past two years, while Bureau actions (taken on its own and with state agencies) have resulted in judgments exceeding $17 million.
The report provides several recommendations, including that policymakers, the Department of Education, and the Bureau “assess and consider the sharing of information, analytical tools, education outreach, and expertise” to prevent borrower harm, and that when harm occurs, “reduce the window in which harm is occurring through timely identification and remediation.” With regard to student loan debt relief scams, the report recommends, among other things, that enforcement should be expanded “beyond civil enforcement actions to criminal enforcement actions at all levels.”
California: Mortgage debt now included under Rosenthal Fair Debt Collection Practices Act
On October 7, California’s governor signed SB 187, which amends the state’s Rosenthal Fair Debt Collection Practices Act and provides that consumer debt under the act now includes mortgage debt. SB 187 also removes the exception for an attorney or counselor at law from the definition of debt collector, and makes other nonsubstantive changes. The amendments take effect January 1, 2020.
District Court rules debt collection attorney can invoke arbitration provision
On October 8, the U.S. District Court for the Northern District of Illinois granted a defendant’s motion to compel arbitration in a putative class action suit alleging that he threatened to charge unauthorized late fees on defaulted consumer debt. The suit claimed that the defendant, who was an attorney hired to collect the debt, violated the FDCPA when he sent a letter attempting to collect on a delinquent account containing the language: “Because of interest, late charges, attorneys fees, if any, and other charges that my vary from day to day, the amount due on the day you pay may be greater.” According to the borrower, the statement was false and misleading because late fees could not accrue on her debt anymore since the debt had already been “fully accelerated” under the provisions of consumer loan agreement signed with the company that owned her consumer loan account. The attorney moved to compel arbitration based on an arbitration provision in the borrower’s loan agreement. While the borrower did not dispute that the arbitration provision was valid, she argued that the attorney does not fall within the provision’s scope. Among other things, the borrower asserted that (i) the attorney was not a party to the loan agreement and, thus, could not invoke its arbitration provision; and (ii) FDCPA claims can only be brought against a debt collector and not against the creditor, and that, because the company (not the attorney) was her creditor, the arbitration provision would not cover her FDCPA claims.
The court disagreed. “The fact that an FDCPA claim against [the company] would be a clear loser does not mean that the arbitration provision does not cover FDCPA claims—which have been brought, and will continue to be brought, against creditors,” the court stated. “Arbitration provisions cover weak and strong claims alike, so long as the claim falls within the provision’s defined scope.” According to the court, the claims fell comfortably within the provision’s broad agreement to arbitrate “any dispute, claim or controversy” related to a borrower’s account, loan agreement or relationship with the company. Concerning the borrower’s argument that the attorney cannot invoke the arbitration provision because he is not a party to the loan agreement, the court agreed that, “as a general rule, ‘[o]nly signatories to an arbitration agreement can file a motion to compel arbitration.’” However, it ruled that Illinois law allows an exception to the general rule where the signatory’s agent seeks to compel arbitration. Moreover, the court further ruled that the attorney has not waived his right to arbitration by litigating the case for nine months before moving to compel arbitration.
District Court denies TCPA class certification involving collection calls placed to wrong number
On September 27, the U.S. District Court for the Middle District of Florida denied class certification in an action alleging violations of the TCPA, the Florida Consumer Collection Practices Act, and the FDCPA brought against two companies. The action alleged that defendants used an automated telephone dialing system (autodialer) to call the plaintiff’s cell phone using a “prerecorded voice” while trying to contact a different individual to collect an unpaid debt. The defendants allegedly called the plaintiff’s cell phone number—which was listed as the other individual’s home phone number but had been reassigned to the plaintiff—multiple times even after the plaintiff informed the defendants that they had the wrong phone number. The plaintiff alleged violations of the TCPA, claiming the defendants placed the calls without first obtaining prior express consent.
Among other arguments, the defendants challenged the proposed class definition, which included more than 9,000 non-customers who allegedly received calls from the defendants and were identified by a code that the plaintiff contended is assigned to calls made to “bad phone” numbers. According to the defendants, the plaintiff’s expert developed a process for “identify[ing] calls where [autodialed] calls and prerecorded messages were made to cell phones after a record documenting an event consistent with a wrong number and/or a request to stop calling.” However, the defendants argued, among other things, that there are many different reasons why a “bad phone” code could be assigned to an account, and that the plaintiff’s assertions do not “satisfy the clearly ascertainable standard,” which must be met for class certification.
“Indeed, when presented with similar evidence regarding ‘wrong number’ call log designations, this [c]ourt recognized that ‘in the debt collection industry ‘wrong number’ oftentimes does not mean non-consent because many customers tell agents they have reached the wrong number, though the correct number was called, as a way to avoid further debt collection,’” the court stated. “The difficulty in ascertaining this information is compounded by the fact that the phone numbers at issue were initially provided to [the defendants] by consenting customers.”
CFPB files claims against Maryland debt collectors
On September 25, the CFPB filed a complaint in the U.S. District Court for the District of Maryland against a debt collection entity, its subsidiaries, and their owner (collectively, “defendants”) for allegedly violating the FCRA, FDCPA, and the CFPA. In the complaint, the Bureau alleges that the defendants violated the FCRA and its implementing Regulation V by, among other things, failing to (i) establish or implement reasonable written policies and procedures to ensure accurate reporting to consumer-reporting agencies; (ii) incorporate appropriate guidelines for the handling of indirect disputes in its policies and procedures; (iii) conduct reasonable investigations and review relevant information when handling indirect disputes; and (iv) furnishing information about accounts after receiving identity theft reports about such accounts without conducting an investigation into the accuracy of the information. The Bureau separately alleges that the violations of the FCRA and Regulation V constitute violations of the CFPA. Additionally, the Bureau alleges that the defendants violated the FDCPA by attempting to collect on debts without a reasonable basis to believe that consumers owed those debts. The Bureau is seeking an injunction, damages, redress to consumers, disgorgement, the imposition of a civil money penalty, and costs.
Seventh Circuit affirms dismissal of FDCPA suit concerning “current balance” reference
On September 25, the U.S. Court of Appeals for the Seventh Circuit affirmed the dismissal of an action against a debt collection agency for allegedly violating the FDCPA by referring to the amount owed as a “current balance” in a letter—even though it was static and not going to change. According to the opinion, the plaintiff contended that “current balance” falsely implied that the balance might increase in the future, which, she argued, was a violation of the FDCPA’s prohibition on false, deceptive, or misleading representations connected to the collection of a debt. By implying that the amount owed might increase if not paid, the plaintiff argued, the debt collector allegedly misled debtors into giving static debts greater priority. The district court granted the debt collector’s motion to dismiss for failure to state a claim, ruling “that no significant fraction of the population would be misled” by the letter’s use of the “current balance” phrase. The plaintiff appealed, arguing that the phrase would confuse an unsophisticated consumer.
On appeal, the 7th Circuit determined that there is nothing inherently misleading about the reference and stated that, not only did the debt collector’s letter not contain a directive for a debtor to call for a current balance, it also failed to include language implying that a “current balance” means anything other than the balance owed. “It takes an ingenious misreading of this letter to find it misleading,” the appellate court concluded. “Dunning letters can comply with the [FDCPA] without answering all possible questions about the future. A lawyer’s ability to identify a question that a dunning letter does not expressly answer (‘Is it possible the balance might increase?’) does not show the letter is misleading, even if a speculative guess to answer the question might be wrong.”
District Court: Law firm's professional debt-collection services exempt from MCPA
On September 17, the U.S. District Court for the District of Maryland partially granted a law firm’s motion for summary judgment in a consolidated debt-collection action concerning alleged violations of the Maryland Consumer Debt Collection Act (MCDCA) and the Maryland Consumer Protection Act (MCPA). The law firm, which collects debts from consumers relating to residential leases, filed breach of contract actions against four plaintiffs seeking damages resulting from residential lease breaches. According to two of the plaintiffs, the law firm violated the FDCPA, the MCDCA, and the MCPA when it charged a 10-percent post-judgment interest rate, 4 percent higher than the applicable statutory rate legally allowed. The other two plaintiffs alleged violations of the FDCPA and the MCDCA. In 2018, following the court’s decision to certify the question of law to the Maryland Court of Appeals, the appeals court found that “a post-judgment interest rate of six [percent] applies” in circumstances where a trial court enters judgment in a landlord’s favor, including damages for unpaid rent and other expenses.
The court first addressed the plaintiffs’ FDCPA claims, ruling that the claims are time-barred as the statute of limitations expired prior to the filing of each plaintiff’s complaint. With regard to the plaintiffs’ MCDCA claim, the court concluded that the law firm’s use of a 10-percent post-judgment interest rate is “the type of unauthorized charge proscribed by the MCDCA,” dismissing the law firm’s argument that the interest rate was a “mistake regarding the amount owed on the underlying debt. . .and that a challenge to the amount of interest owed is a challenge to the validity of the underlying debt.” Additionally, the court denied the law firm’s motion for summary judgment on the MCDCA claim because lack of knowledge “‘does not immunize debt collectors from liability for mistakes of law.’”
However, the court granted the law firm’s motion for summary judgment on the MCPA claim because law firms engaged in professional debt-collection services are exempt from liability under the MCPA, and that exemption does not require a relationship between the parties.
28 state AGs argue CFPB’s debt collection proposal “falls far short”
On September 18, 28 state attorneys general filed a comment letter in response to the CFPB’s Notice of Proposed Rulemaking (NPRM) amending Regulation F to implement the Fair Debt Collection Practices Act (FDCPA) (the “Proposed Rule”), urging the Bureau to reconsider the proposal. As previously covered by InfoBytes, on May 7, the CFPB issued the Proposed Rule, which covers debt collection communications and disclosures and addresses related practices by debt collectors. The comment letter argues that, “on the most critical issues, the Proposed Rule falls far short.” Specifically, the AGs assert that the bright-line call limit would not meaningfully reduce calls for the majority of consumers because the limit is placed on the debt, not on the consumer, which “renders any benefits to consumers illusory.” Moreover, because there is no restriction on the number of electronic communications a debt collector can send, the AGs argue that the Proposed Rule would result in a “barrage of emails and texts, and even social media contacts.” In addition to the concerns on contact, the letter, among other things, argues that the Proposed Rule: (i) should require affirmative consent for contact methods outside of phone or mail, as opposed to the opt-out requirements; (ii) should only allow for electronic delivery of validation notices with E-SIGN Act compliance; (iii) should have a strict-liability standard for collections on time-barred debt; and (iv) should apply to first-party creditors, as well as third-party creditors. Lastly, the letter notes the Proposed Rule fails to address a number of other topics, including the substantiation of debt prior to litigation, debt payment allocation, and the additional challenges faced by servicemembers.
FTC supports CFPB on debt collection proposal
On September 18, the FTC issued its comment letter to the CFPB’s Notice of Proposed Rulemaking (NPRM) amending Regulation F, to implement the Fair Debt Collection Practices Act (FDCPA) (the “Proposed Rule”). As previously covered by InfoBytes, on May 7, the CFPB issued the Proposed Rule, which covers debt collection communications and disclosures and addresses related practices by debt collectors. The FTC is generally in support of the Proposed Rule, and the Commission voted unanimously to approve the submission of the comment. In addition to summarizing the FTC’s legal authority and efforts to protect consumers from unlawful debt collection practices (such as enforcement actions, workshops, and outreach) the comment letter addresses several topics covered in the Proposed Rule. In particular, the FTC supports the Proposed Rule’s provisions on passive collections, decedent debt, and time and place restrictions. Other highlights of the letter include:
- Validation notices. The FTC supports the proposed changes to validation notices, which mandate more information to be provided to the consumer about the debt and the rights the consumer has associated with that debt. The comment letter encourages the CFPB to consider the benefits and risks with regard to the safe harbor for emailed validation notices in initial communications, noting it is important that debt collectors use email addresses that are current and also, that the emails are not sent to unauthorized third parties.
- Time-barred debts. The FTC supports the proposed prohibition on collectors threatening or bringing legal action against consumers to collect on debts that they know or should know are time-barred. However, the comment letter notes that consideration should be given to whether requiring the showing that the collector knew or should have known about the age of the debt is a potential unnecessary additional burden on law enforcement agencies.
- Prohibitions on the sale or transfer of certain debts. The FTC supports the proposed prohibition on selling, transferring, or placing for collection a debt that the collector knows or should know has been paid or settled, discharged in bankruptcy, or has been the subject of an identity theft report. The comment letter requests that the CFPB consider adding to this prohibition additional categories of debt that are “more squarely associated with phantom debt collection, including, for example, debts that are counterfeit or fictitious.”
- Communications media. The FTC supports the proposed requirement that a debt collector include—in emails, text messages and other electronic communications—an option for the consumer to opt-out of communications through that particular medium. The comment letter encourages the CFPB to consider requiring collectors to provide a direct, simple, electronic mechanism to quickly exercise this opt-out right.
- Restrictions on disclosures to third parties. The FTC supports the proposed definition of “limited-content messages” but encourages the CFPB to consider ways to minimize the likelihood that third parties would recognize limited-content messages as being associated with a debt collection and notes that allowing for these messages during live calls poses heightened risk for disclosure of the debt.
- Telephone call frequency limits. The FTC supports the proposed restrictions on call frequency and notes that these protections should apply to calls that “may not cause a traditional ring,” including ringless voicemail messages. Additionally, the FTC supports the application of the protections to limited-content messages and location information calls to third parties.
CFPB issues summer 2019 Supervisory Highlights
On September 13, the CFPB released its summer 2019 Supervisory Highlights, which outlines its supervisory and enforcement actions in the areas of automobile loan origination, credit card account management, debt collection, furnishing, and mortgage origination. The findings of the report cover examinations that generally were completed between December 2018 and March 2019. Highlights of the examination findings include:
- Auto loan origination. The Bureau noted that one or more examinations found that guaranteed asset protection (GAP) products were sold to consumers with low loan-to-value (LTV) loans, resulting in those consumers purchasing a product that was not beneficial to them. The Bureau concluded these sales were an abusive practice, as “the lenders took unreasonable advantage of the consumers’ lack of understanding of the material risks, costs, or conditions of the product.”
- Credit card account management. The Bureau found several issues with credit card account servicing, including violations of Regulation Z for failing to clearly and conspicuously provide disclosures required by triggering terms in online advertisements and for offsetting consumers’ credit card debt against funds that the consumers had on deposit with the issuers without sufficient indication that the consumer intended to grant a security interest in those funds.
- Debt collection. The Bureau noted violations of the FDCPA’s prohibition on falsely representing the amount due when debt collectors claimed and collected interest that was not authorized by the underlying contracts between the debt collectors and the creditors.
- Credit information furnishing. The Bureau found multiple violations of the FCRA, including furnishers failing to complete dispute investigations within the required time period and failing to promptly send corrections or updates to all applicable credit reporting agencies after a determination that the information was no longer accurate.
- Mortgage origination. The Bureau noted that creditors had violated Regulation Z by disclosing inaccurate APRs for closed-end reverse mortgages and also by using a unit-period of one month instead of one year to calculate the total annual loan cost (TALC) rate and the future value of all advances, leading to inaccurate TALC disclosures.
The report notes that in response to most examination findings, the companies have taken, or are taking, remedial and corrective actions, including by identifying and compensating impacted consumers and updating their policies and procedures to prevent future violations.
Lastly, the report also highlights the Bureau’s recently issued rules and guidance.